HealthSavings Blog

It’s a question many of us wonder about, but few people ask. And does it really matter? To your spouse and beneficiary, it might. There are three possible scenarios.

Scenario 1: Your spouse is your beneficiary.

In this scenario, your spouse is your primary beneficiary and will receive 100% of your HSA. That means your HSA will belong to your spouse and he/she will become the owner. The owner can use the HSA funds to pay for your qualified medical expenses incurred before death, as well as future medical expenses of his/her tax dependents. Your spouse can also get reimbursed tax-free at any time for qualified medical expenses you paid out of pocket prior to your death and didn’t reimburse. Even if your spouse isn’t HSA-eligible, they can withdraw funds to pay for qualified medical expenses.

Scenario 2: Your beneficiary is not your spouse.

If your beneficiary is not your spouse, your HSA will be closed. Your non-spouse beneficiary will inherit the fair market value of your account on the date of your death. He/she then has one year to pay your qualified medical expenses incurred before death. Any amount paid reduces the inheritance amount and the subsequent tax burden.

Scenario 3: Your estate is your beneficiary.

If you don’t designate a beneficiary, your HSA funds will be distributed to your estate. Your gross income for that year will be included in the fair market value of the account. Estate taxes will also be reduced by the same amount.